[Federal Register Volume 61, Number 201 (Wednesday, October 16, 1996)]
[Notices]
[Pages 53984-53987]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-26396]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37797; File No. SR-NASD-96-32]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change by National
Association of Securities Dealers, Inc. Relating to Availability of
Disciplinary Complaints and Disciplinary Decisions Upon Request
October 9, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on October
2, 1996, NASD Regulation, Inc. (``NASDR'') filed with the Securities
and Exchange Commission (``SEC'' or ``Commission'') the proposed rule
change as described in Items I, II, and III below, which Items have
been prepared by NASDR.\1\ The
[[Page 53985]]
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons. For the reasons discussed
below, the Commission is granting accelerated approval of the proposed
rule change.
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\1\ The NASD initially submitted the filing on August 6, 1996.
On September 19, 1996, the NASD filed Amendment No. 1 with the
Commission. See letter from Alden S. Adkins, Vice President and
General Counsel, NASD, Inc., to Katherine A. England, Assistant
Director, Division of Market Regulation, SEC (September 19, 1996).
On October 2, 1996, NASDR filed Amendment No. 2 with the Commission.
See letter from Suzanne E. Rothwell, Associate General Counsel, NASD
Regulation, Inc., to Katherine A. England, Assistant Director,
Division of Market Regulation, SEC (October 2, 1996).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
NASDR is proposing to amend the Interpretation on the Release of
Disciplinary Information, IM-8310-2 of the Procedural Rules of the
National Association of Securities Dealers, Inc. (``NASD'' or
``Association''), to permit the Association to provide a copy of any
disciplinary complaint or disciplinary decision upon request and to
require that such copy be accompanied by a disclosure statement in
certain circumstances. Below is the text of the proposed rule change.
Proposed new language is italicized; proposed deletions are in
brackets.
IM-8310-2. Release of Disciplinary Information
(a) The Association shall, in response to a written inquiry or
telephonic inquiry via a toll-free telephone listing, release certain
information as contained in its files regarding the employment and
disciplinary history of members and their associated persons, including
information regarding past and present employment history with
Association members; all final disciplinary actions taken by federal or
state or foreign securities agencies or self-regulatory organizations
that relate to securities or commodities transactions; all pending
disciplinary actions that have been taken by federal or state
securities agencies or self-regulatory organizations that relate to
securities and commodities transactions and [have been] are required to
be reported on Form BD or U-4 and all foreign government or self-
regulatory organization disciplinary actions that are securities or
commodities related and are required to be reported on Form BD or U-4;
and all criminal indictments, informations or convictions that are
required to be reported on Form BD or Form U-4. The Association will
also release information concerning civil judgments and arbitration
decisions in securities and commodities disputes involving public
customers.
(b) The Association shall, in response to a request, release to the
requesting party a copy of any identified disciplinary complaint or
disciplinary decision issued by the Association or any subsidiary or
Committee thereof; provided, however, that each copy of:
(1) a disciplinary complaint shall be accompanied by a statement
that the issuance of a disciplinary complaint represents the initiation
of a formal proceeding by the Association in which findings as to the
allegations in the complaint have not been made and does not represent
a decision as to any of the allegations contained in the complaint;
(2) a disciplinary decision that is released prior to the
expiration of the time period provided under the Code of Procedure for
appeal or call for review within the Association or while such an
appeal or call for review is pending, shall be accompanied by a
statement that the findings and sanctions imposed in the decision may
be increased, decreased, modified, or reversed by the Association;
(3) a final decision of the Association that is released prior to
the time period provided under the Securities Exchange Act of 1934 for
appeal to the Commission or while such an appeal is pending, shall be
accompanied by a statement that the findings and sanctions of the
Association are subject to review and modification by the Commission;
and
(4) a final decision of the Association that is released after the
decision is appealed to the Commission shall be accompanied by a
statement as to whether the effectiveness of the sanctions has been
stayed pending the outcome of proceedings before the Commission.
Current paragraphs (b) through (k) are redesignated (c) through
(l).
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, NASDR included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item III below. NASDR has prepared summaries, set forth in Sections
(A), (B), and (C) below, of the most significant aspects of such
statements.
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
(a) In 1988, the NASD established a Public Disclosure Program
(``Program'') that, among other things, makes certain types of federal
and state disciplinary information on NASD members and associated
persons available to the public through the Central Registration
Depository (``CRD'') maintained by the NASD.\2\ This Program provides
investors, customers and the press with access to a number of
categories of information on an NASD member or any of the member's
associated persons, which are provided to inquiring persons in synopsis
form. Subsequent to the establishment of the Program, the Securities
Enforcement Remedies and Penny Stock Reform Act of 1990 \3\ mandated
that the NASD implement a toll-free telephone number to provide
employment history and disciplinary information about members and
associated persons to inquiring persons. The NASD complied with this
mandate in April 1992 and, since that time, has made periodic
improvements to the Program to expand the scope of information
available upon request. One of these improvements included the release
of information through the Program of information on pending NASD
disciplinary proceedings, which includes providing a synopsis of NASD
disciplinary complaints \4\ and disciplinary decisions on appeal to the
National Business Conduct Committee (``NBCC'').
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\2\ See Notice to members 93-37 (June 1993).
\3\ Public Law 101-429, 104 Stat. 931 (1990).
\4\ This rule change addresses only ``disciplinary complaints,''
not ``customer complaints.''
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Those individuals, including the press, who are aware of the
availability of information through CRD may obtain a description in
synopsis form of any disciplinary complaint or disciplinary decision
issued by the Association with respect to any member or associated
person of a member by requesting the synopsis from CRD through the
NASD's toll-free telephone number or by making a written inquiry. Such
persons sometimes, as part of their inquiry, request a complete copy of
the disciplinary complaint or decision from the Association. Under the
Interpretation on the Release of Disciplinary Information (``Rule''),
IM-8130-2,\5\ NASD Regulation provides notification to the membership
and the press of significant disciplinary decisions when time for
appeal and call for review has expired, but the Rule does not
specifically authorize the Association to provide copies of any
disciplinary complaint or disciplinary
[[Page 53986]]
decision, in its entirety, upon request. As a matter of practice, the
staff has not provided copies of disciplinary complaints in response to
requests. In contrast, the Association has, however, maintained a
policy since 1994 of providing complete copies of disciplinary
decisions upon request, pursuant to an interpretation of paragraph (a)
of the Rule, which permits the Association to release information upon
request regarding ``* * * all pending disciplinary actions * * * .''
Such decisions that are issued by a District Business Conduct Committee
or the Market Surveillance Committee prior to the expiration of the
time during which the decision can be appealed or called for review
within the Association are accompanied by a statement that the findings
and sanctions could be increased, decreased, or modified by the
Association if the matter is appealed to the NBCC or called for review.
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\5\ The Interpretation was previously cited as ``Resolution of
the Board of Governors--Notice to Membership and Press of
Suspensions, Expulsions, Revocations, and Monetary Sanctions and
Release of Certain Information Regarding Disciplinary History of
Members and Their Associated Persons'' and appeared after paragraph
2301 of the NASD Manual, following Article V, Section 1 of the Rules
of Fair Practice.
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NASDR is proposing to amend the Rule to adopt new paragraph (b) to
clarify that the Association shall provide, on request, copies of any
NASD disciplinary complaint and disciplinary decision. In making a
request for a disciplinary complaint, the proposed rule change requires
that the requesting party ``identify'' the disciplinary complaint or
decision that is being requested. This language is intended to prevent
requests for ``all complaints'' or ``all decisions'' of the
Association.\6\ The language requiring that the party ``identify'' the
complaint or decision request will be satisfied where the requesting
party identifies a particular broker/dealer or a particular associated
person that is a respondent in an NASD disciplinary action (although
the date of any action may not be known) or identifies the issue or
rule that is the subject of a complaint (where the identity of the
member is not known). Although a request may identify a time period
when the requested complaint or decision was issued, it would be
permissible for the requesting party to obtain a copy of all complaints
and decisions related to an identified broker/dealer or associated
person without reference to a time period.
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\6\ The NASD believes that omnibus requests by commercial
organizations for copies of all complaints and decisions for a
particular year, for example, would impose a considerable burden on
NASDR, impeding the organization's ability to respond to the
individual requests of the investing public.
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In addition, the proposed rule change would require that copies of
disciplinary complaints and decisions be accompanied by certain
disclosures, in certain circumstances, that are set forth in
subparagraphs (b)(1)-(4) in order to advise the recipient of the status
of the disciplinary action. In particular, NASDR is concerned that
recipients of a copy of a disciplinary complaint understand that the
issuance of a complaint does not represent a decision as to any of the
allegations contained in the complaint. The proposed rule change,
therefore, would require that any copy of a disciplinary complaint be
accompanied by a statement that the issuance of a complaint represents
the initiation of a formal proceeding by the Association in which
findings as to the allegations in the complaint have not been made and
that this issuance does not represent a decision as to any of the
allegations contained in the complaint. Moreover, disciplinary
decisions are issued at the initial hearing level and at a number of
appellate review levels of the organization. It is important,
therefore, that a recipient of a disciplinary decision be advised when
a decision is not considered final by the Association because the time
for the respondent to appeal the matter or the time for a reviewing
body of the Association to call the matter for review has not expired,
or the review of a matter is pending. The proposed rule change
provides, therefore, that any copy of a disciplinary decision issued
pursuant to the Code of Procedure prior to the expiration of the time
for appeal to or call for review within the Association (i.e., by, as
applicable, the NBCC, Board of Directors of NASD Regulation, or Board
of Governors of the Association) or released while such an appeal or
review is pending, would be required to be accompanied by a statement
that the findings and sanctions imposed in the decision may be
increased, decreased, modified, or reversed by the Association if the
matter is appealed or called for review. This language is consistent
with the disclosures that currently are being provided with respect to
decisions issued by a District Business Conduct Committee or Market
Surveillance Committee prior to the expiration of the time for appeal
or call for review, or while an appeal is pending.
Similarly, any copy of a final decision of the Association released
prior to the expiration of the time period for the filing of an appeal
to the SEC or while such an appeal is pending would be required to be
accompanied by a statement that the findings and sanctions of the
Association are subject to review by the Commission if the decision is
appealed. Finally, any copy of a final decision of the Association
released after the decision is appealed to the Commission would be
required to be accompanied by a statement that the effectiveness of the
decision has or has not been stayed pending the outcome of proceedings
before the Commission. This language is drawn from current paragraph
(g) of the Rule.
NASDR is also proposing to amend paragraph (a) of the Rule.
Currently, the provision appears to prevent information from being
provided through the Program if it has not been reported on Form BD or
U-4, even though Form BD or U-4 would require the reporting of such
information. This was not the intent of the current rule language.
NASDR is, therefore, proposing to amend the provision to clarify that
information provided through the Program is that information that is
required to be reported on Form BD or U-4, regardless of whether the
information is actually provided to the NASD on these forms.
(b) NASDR believes that the proposed rule change is consistent with
the provisions of Section 15A(b)(6) \7\ of the Act in that the proposed
rule change to permit the Association to provide copies of NASD
disciplinary complaints and disciplinary decisions to persons upon
request will protect investors and the public interest by providing
more complete information to such persons than currently can be
obtained from the synopsis of disciplinary complaints and decisions
that is provided by the Program.
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\7\ 15 U.S.C. 78o-3.
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(B) Self-Regulatory Organization's Statement on Burden on Competition
NASDR does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the
[[Page 53987]]
Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for inspection and copying in the
Commission's Public Reference Room. Copies of such filing will also be
available for inspection and copying at the principal office of the
NASD. All submissions should refer to the file number in the caption
above and should be submitted by [insert date 21 days from the date of
publication].
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
NASDR has requested that the Commission find good cause pursuant to
Section 19(b)(2) of the Act, for approving the proposed rule change
prior to the 30th day after publication in the Federal Register. The
Commission has reviewed the NASDR's proposed rule change and believes,
for reasons set forth below, that the proposal is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to the NASD. Specifically, the Commission believes the
proposal is consistent with Section 15A(b)(6) of the Act, which
provides in pertinent part that the rules of the association be
designed to foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect to,
and facilitating transactions in securities and not to permit unfair
discrimination among customers, issuers, brokers or dealers.
The Commission finds good cause, pursuant to Section 19(b)(2) of
the Act, for approving the proposed rule change prior to the 30th day
after publication in the Federal Register.\8\ Paragraph (a) of IM-8310-
2 permits the Association to release information on ``all pending
disciplinary actions that have been taken by federal or state
securities agencies or self-regulatory organizations that relate to
securities and commodities transactions * * *'' in response to a
request. NASDR believes that this provision permits the Association,
upon request, to release copies of its disciplinary complaints and
decisions, as well as, providing, on request, a synopsis of such
complaints and decisions based on the information in the CRD. The
proposed rule change would codify this interpretation of Paragraph (a)
of the Rule. The Commission believes that the proposed rule change
would benefit the investing public by providing more complete
disclosure of information related to disciplinary complaints and
disciplinary decisions. Supplying this additional information would
benefit the subject of the complaint as well; instead of disseminating
a synopsis, lacking detail, a full account of the circumstances would
be made available.
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\8\ See, supra, note 1.
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Based on the foregoing, the Commission deems it appropriate to
approve the proposed rule change on an accelerated basis, pursuant to
Section 19 of the Act and the rules and regulations thereunder.\9\
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\9\ 15 U.S.C. 78o-3.
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\10\ that the proposed rule change SR-NASD-96-32 be, and hereby is,
approved.
\10\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority, 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-26396 Filed 10-15-96; 8:45 am]
BILLING CODE 8010-01-M
